And we would have gotten away with it, too, if it weren't for those meddling kids.
Posted on 08/21/2003 6:15:34 AM PDT by Brian S
By Nichola Groom
NEW YORK (Reuters) - One look at corporate America's bare-bones capital spending plans for this year and it's hard to imagine there will be a strong, sustainable rebound in the U.S. economy any time soon.
But while recent economic data has shown an encouraging rise in orders for factory goods, many of the biggest names in corporate America are keeping a tight lid on new investments in technology, equipment and construction as well as research and development.
After Hewlett-Packard Co., the maker of computers and printers, reported a disappointing quarterly profit, analysts said the company needed to work harder to contain costs. HP's spending on research and development, however, was already down 10.6 percent from year-ago levels.
And that pattern could spell bad news for the prospects for a pickup in the U.S. economy and in profits, especially if consumer spending is hurt by high unemployment and recent rises in home mortgage rates.
"Ultimately for the recovery to have legs, capital spending has got to kick in, and it will eventually," said Chuck Hill, director of research at Thomson First Call. "I guess the magic word is 'gradual."'
Aside from HP, those trying hardest to rein in spending include long-distance phone company AT&T Corp., chemicals maker DuPont Co. and restaurant company McDonald's Corp., all of which scaled back spending plans for 2003 in the face of lackluster demand.
Taking a different tack, charge card company American Express Co. said last month it would boost spending in the second half of the year, while chipmaker Intel Corp. raised its research and development spending target.
But those are the exceptions. Most of the biggest U.S. manufacturers, including Caterpillar Inc., Boeing Co., and Alcoa Inc., are sticking to trimmed-down spending plans for 2003 to combat the effects of weak growth in sales.
Aluminum producer Alcoa, for instance, has said it plans to trim capital spending by more than 20 percent this year, while heavy equipment maker Caterpillar's spending in the first half of the year was roughly 35 percent lower than it was in the same period last year.
NOWHERE TO GO BUT UP
Capital spending budgets have been slashed in recent years as demand for products has plunged and companies cannot raise their prices. Experts said spending on capital investments has been trimmed so much there is nowhere to go but up.
"Things were cut so much to the bone there will be some uptrend, but it will just be some industries here and there," said Hill.
Post-it note maker 3M Co., for one, plans to raise spending from last year's levels, mostly in the second half of the year. Still, the company's total capital spending forecast for 2003 is below 2001 and 2000.
A survey of chief executives by the Business Roundtable last month showed 74 percent expected capital spending to remain stable over the next six months, compared with just 55 percent in an April survey.
It also showed a decline in CEOs who expected to either decrease or increase capital spending -- underlining the trend of sticking to their scaled-back budgets.
But in 2004, experts said budgets are expected to grow.
"If you don't step up to the plate, you run the real risk of being left behind," said Hugh Johnson, chief investment officer at First Albany Corp. "Most companies will be looking at higher budgets in 2004 than 2003."
According to some data, spending on technology and other kinds of equipment has already improved -- albeit slightly. Sales of semiconductors, for instance, were up more than 10 percent in the second quarter from the year-earlier period.
"Purse strings are being loosened in high-tech, but not just high-tech," said Cynthia Latta, an economist at economic forecasting firm Global Insight. "It is spread broadly."
Larger and more costly projects, however, such as new factories or power plants, are not expected to pick up until late next year.
"We are seeing a lot of empty manufacturing facilities as companies close them down because they simply can't compete with cheap imported goods," Latta said. "We don't see any early end to that trend."
And we would have gotten away with it, too, if it weren't for those meddling kids.
Reuters, being foreign-owned, is rooting for a different team.
Thie direction capital investment spending will go, or when it will go in that direction, is not as much of a concern to me as what country it will be spent in. The Bush tax cuts may well end up just being a transfer of wealth to China, or India, or somewhere else in the third world.
But signs are emerging that businesses are opening their wallets. Data for the second quarter showed companies increased spending during April, May and June. Several studies, including one by economic consulting firm Economy.com, show CEO confidence is rising.
But consistent with the rising trend in the indicators, business investment actually began to recover in the second quarter and could well be performing even better now in the third quarter.
Are we ready yet to flush the paper this was written on? (Granted, it's cyberpaper, but we could do a cyberflush.)
Looked like most were using plastic, as I didn't see any IRS checks being cashed. I don't know what it means. I just couldn't get outta there, that's all.
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